Funeral claim declined as life covered not recognised as family member
A recent Long Term Insurance Ombudsman determination involved equity, fairness as well the spirit of Ubuntu.
The complainant had taken out a funeral policy in 2013, 2015 and in 2016 covering her family and included the deceased as a life insured and paid a premium for him. The deceased had not been a family member but had been cared for by the complainant from 2009 until his death on 1 February 2018 after he was stabbed during a robbery.
The complainant explained her relationship with the deceased to the insurer and also obtained affidavits from family members. The headman of the district also confirmed that she took care of the deceased. “Due to some financial constraints in 2009 we handed over ‘A’ to Ms ‘Z’ who became a parent to him”, the statement of the deceased aunt read.
The complainant also provided evidence that she had contributed towards the funeral. The complainant explained that in addition to the contribution she made to the funeral she planned to use the proceeds of the funeral policy for a tombstone as well as fencing the area to provide protection from animals that had damaged the grave.
However, the insurer refused the claims on the basis that the complainant had described the deceased as a family member when there had not been a blood relationship. The Insurer refunded the premiums paid in respect of the deceased.
The Ombudsman for Long-term Insurance’s recommendation
The Ombud suggested to the Insurer that they should consider equity/fairness given the circumstances of the relationship between the complainant and the deceased.
The Insurer was not prepared to make this concession based on its views that:
● There had been a material misrepresentation and it would not have accepted the risk had they known of the true relationship.
● A payment outside the terms of the policy would be unfair and that it would be unfair discrimination if this policyholder was treated differently from other policyholders.
Ombud’s provisional determination
The Ombudsman was of the view that there was a lack of understanding of the application of the Ombudsman’s equity/fairness jurisdiction.
Rule 1.2.4 specifically states that the Ombudsman has to ensure that “he or she accords due weight to considerations of equity;” and Rule 1.2.7 states that “subscribing members act with fairness and with due regard to both the letter and the spirit of the contract between the parties….”
The complaint was further discussed at an adjudicator’s meeting, where the following points, specifically about the relationship between the complainant and the deceased, were made:
● There was mutual affection between the complainant and the deceased;
● The complainant explained that the deceased at first called her “aunt” and later on “mum”;
● The complainant regarded the deceased in the same light as her own children;
● The complainant took care of the deceased in the same way as she did her own children;
● The fact that the complainant contributed to the funeral expenses, is not disputed.
● The deceased did not have any other parent or guardian who took care of him in this way;
● It appears from the correspondence that the complainant regarded the deceased as part of her family, even though there was no legal adoption. (This is in accordance with the values of ubuntu).
The Insurers response:
Their unanimous conclusion was that, taking all considerations into account, the claim should not be paid – no matter how much one’s heart goes out to the bereaved policyholder.
Reasons for their decision included:
● This policy product was meticulously designed, actuarially, to provide insurance cover to a circumscribed group of persons.
● The policy contract spells out clearly, in plain language, which persons may be covered – in particular also who can be covered as a child of the policyholder.
The Ombud’s final determination was that the Insurer should pay the claims (less premiums refunded) plus interest by a set date based on the following:
● When an application of the policy provisions leads to an unfair/inequitable result it is necessary to exercise their (the Ombudsman) equity jurisdiction, as in this complaint.
● The insurer was advised to review its approach to equity.
● The Ombudsman did not agree with the Insurer’s finding that it was an intentional misrepresentation by the complainant.
● It further found that there was no fraudulent intent on the part of the complainant.
● The complainant treated the deceased as her own child.
The Ombudsman further explained that its decision was based om fairness and not on sympathy and compassion.
Fairness is prescribed as a requirement in terms of the Financial Ombud Schemes Act, 2004; it is part of the requirements for such schemes in terms of Chapter 14 (to be effective 1 April 2019) of the Financial Sector Regulation Act, 2017; it is part of the Treating Customers Fairly approach included in the Policyholder Protection Rules; and fairness is one of the fundamental principles that the International Network of Financial Services Ombudsman Schemes recommends for financial ombudsman schemes.
It is very likely that cases such as this one, as well as the Ganas case, where Momentum declined a death claim on the basis of non-disclosure, are setting precedents which can impact seriously on the way death claims are handled. Ultimately, premiums will need to increase to protect the interests of all policyholders, which is to the detriment of all.